Glossary

This is frequently defined as an investment management approach that is decorrelated from market indices. This type of approach is based on both diversified and complex strategies and instruments. This nature of this type of fund management means that it is aimed exclusively at “sophisticated” investors i.e. institutionals, such as banks for example.

Funds that use more sophisticated financial techniques and instruments than those of traditional investment funds (derivatives products, leverage, short-selling). The alternative investment approach aims to generate absolute return rather than performance to a benchmark and seeks to decorrelate performances from equity and bond markets.

The balance of payments is a statistical report that traces, in accounting form, all flows of real, financial and monetary assets between the residents of an economy and non-residents over a defined period. The economic and financial flows at the origin of these operations are divided up with a distinction made between the current transaction account (exchanges of goods, services, revenues and current transfers), the capital account (capital transfers) and the financial account (direct or portfolio investments).
For France, it is developed by the Banque de France, on behalf of the DGTPE.

The benchmark is a reference index or a combination of reference indices that are used to assess the profitability of a fund manager as compared to a pre-set target (e.g. CAC 40, S&P 500, or a basket of stocks or of indices). When the benchmark is a fund management objective, it must be explicitly stated in the Key Investor Information Document. Most of the time, asset managers set out a ratio, known as the tracking error ratio, which reflects the probability that the fund’s profitability will diverge from the profitability of its benchmark.

International stock index reference calculated daily on the basis of 40 stocks selected from among the largest market capitalizations listed on Euronext Paris. Its composition changes regularly. This index is published by Euronext and is available at www.euronext.com.

All assets, securities or liquidity, pledged by the debtor counterparty to the crediting counterparty in order to hedge credit risk resulting from financial transactions between the two parties. In the event of debtor default, the creditor has the right to hold the collateralized assets as compensation for the ensuing financial loss.

Collective investment funds (CIF) are savings products approved by the French financial markets watchdog Autorité des Marchés Financiers, bar some exceptions, and intended for retail and institutional investors. They invest in financial instruments (equities, bonds, debt securities, etc.) on the basis of criteria outlined in the prospectus, and are managed by entities (asset management companies) that are also subject to Autorité des Marchés Financiers authorization. A CIF provides investors with access to a range of diversified securities; its portfolio is entrusted to a professional; units or shares can be redeemed at any time at their net asset value.

Investment management approach characterized by marked plays based on fund managers’ strong convictions, which can lead to sharp differences between the fund and its benchmark, in terms of both the composition of the portfolio and performances.

The core inflation index is a seasonally-adjusted index which allows us to observe deeper trends in the changes in prices. It presents the fundamental growth of production costs and the relationship between supply and demand. It does not include prices which are subject to government intervention (electricity, gas, tobacco etc.) and products whose price is highly volatile (petrol, seasonal produce, dairy products, meats, flowers and plants etc.) which experience high variability due to climatic factors or tensions on the global markets.

Correlation is the extent of the relationship between two securities or asset classes. Two historically correlated assets tend to systematically display similar performances in relation to one another, whether in the same or opposite directions, while two uncorrelated assets will perform independently from one another.

This is a fund management model where the fund manager regularly and dynamically adjusts exposure to risky assets (underlyings such as equities, indices on equities, etc.) and less risky assets (bonds, money market funds, etc.), in order to safeguard invested capital.

Credit risk is the risk of a deterioration in an issuer’s financial or economic situation, which can lead to a decline in the value of the issuer’s security and hence a drop in the net asset value of the FCP fund (common fund) or SICAV fund (open-ended investment companies).

Stocks in these sectors see major fluctuations in earnings depending on growth cycles; their share prices can be very volatile. Some examples of cyclical sectors are oil, construction and automotive IT, capital goods. Some examples of non-cyclical sectors are retail, pharmaceuticals, consumer goods, food.

Income from property paid to shareholders that have made capital available to a company. For a company, the issuing of shares represents a way to obtain capital other than through borrowing. Unlike borrowed capital, share capital is not at the origin of a fixed debt in monetary terms, and does not enable holders of shares to receive a fixed or pre-defined income.

The European Central Bank (ECB) is the central bank responsible for the single European currency, the euro. Its main task is to maintain price stability in the euro area and so preserve the purchasing power of the single currency. The Eurozone consists of the 19 European Union countries which have adopted the euro since 1999.

The main risks related to investment in emerging markets can come from severe fluctuations in share prices and in currencies in these markets, potential political instability and the existence of less strict accounting and financial practices than in developed markets.

Fees paid by the subscriber when buying (subscribing) units or shares in UCITS. These fees are usually expressed as a percentage of the amount subscribed.
This entry fee is also known as a subscription fee.

Equity risk is the risk of a decline in the shares or in the indices to which the Fund/SICAV fund (open-ended investment company) is exposed, as a result of potentially extensive fluctuations on the equity markets.

Euribor is the Euro Interbank Offered Rate, or the European money market rate and equates to the average of rates at which Euro interbank term deposits are offered within the EMU zone for a specific maturity ranging from one week to 12 months. It is published by the European Central Bank from quotations published daily by 64 European banks. It is available at www.euribor.org.

Bond index that measures sovereign debt market performances in the Eurozone with residual maturity of between 1 and 3 years for the Euro MTS 1/3 years, between 3 and 5 years for the Euro MTS 3/5 years, etc. The index is published by MTS Group and is available at www.euromtsindex.com.

Common fund. The FCP has no legal personality and is a collective investment scheme of financial instruments and deposits, with units issued and redeemed on request from subscribers and holders at their net asset value, plus or minus fees and commissions.
When the investor buys units, he/she becomes a member of a collective investment scheme in financial instruments but has no voting rights. The FCP is set up by the asset management company, which manages it and selects a custodian for the fund’s assets.

Employee investment fund. A specialized collective investment scheme reserved for company employees and intended to be invested in securities. There are three types of FCPE – individual, group individual, and multi-company – classified according to the party that establishes them and the target investors.

Venture capital fund. At least 50% of the assets of the venture capital fund (Fonds commun de placement à risques, FCPR) must consist of equity-like securities, equity securities or securities which give direct or indirect access to the capital of companies which are not admitted to trading on a French or foreign regulated market and whose operations are managed by a market undertaking, an investment service provider or any similar foreign entity, or shares in limited liability companies or companies having an equivalent status in their State of residence.

Employee investment undertakings. An FES (Fonds d’épargne salariale, employee investment undertaking) can be an FCPE (Fonds commun de placement d'entreprise, employee investment fund) or a SICAVAS (société d'investissement à capital variable d'actionnariat salarié, SICAV open-ended investment company for employee shareholders). These funds are exclusively designed for funds from employee savings, subscription is available only to the employees of one or several companies.

Financial instruments include both financial securities and financial contracts. Financial securities include: equity securities issued by joint-stock companies, debt securities, with the exception of bills of exchange and interest-bearing notes, units or shares in undertakings for collective investment. Financial contracts, also referred to as "financial futures", are futures contracts that appear on a list established by decree.

The FPS (fonds professionnel spécialisé) is a professional specialized investment fund, which is not subject to AMF authorization, but must be declared with the regulator. The FPS is not obliged to follow the same investment regulations (regulatory ratios) as other AMF-authorized approved funds.

Fundamental analysis aims to assess as fairly as possible the value of a company. Beyond accounting and financial analysis (balance sheet and P&L), fundamental analysis also involves looking at the company’s strategic positioning, its competitive environment, the composition of its management team, etc.

Investment management approach that consists of investing in company stocks that harbor strong future growth potential. Companies targeted by the growth fund management style are often in new technologies sectors.

Fund in which the investor's principal is shielded from losses (excluding subscription fees). This capital guarantee is provided only to investors who have subscribed to the fund during a period outlined in the simplified or full prospectus.

An index option is a financial derivative product. Acquiring an index call or put option gives the holder the right to buy (or sell) this index for a certain length of time agreed in advance. The option buyer pays a premium to purchase this right. There are two main types of options: call (or buy) options and put (or sale) options.

Inflation is the loss of purchasing power of currency, expressed through a general and lasting increase in prices. It must be distinguished from the increase in the cost of living. The loss of value of currency units is a phenomenon that affects the national economy, regardless of the different categories of agents.

The information ratio in an indicator of the outperformance generated by the fund manager as compared to the benchmark, in view of the additional risk taken by the fund manager to the benchmark (fund’s tracking error). The higher the ratio, the better the fund.

Interest rate risk is the risk of depreciation (loss of value) in fixed income instruments due to fluctuations in interest rates. In the event of an increase in interest rates, the value of products invested at a fixed rate will decline, which will lead to a drop in the net asset value of the FCP (common fund)/SICAV (open-ended investment company).

The ISIN code is an alphanumerical code with two letters representing the location of listing (e.g. FR for France) followed by 10 figures, which can be found in the financial journals that list the stocks.

The “Key Investor Information Document” (KIID) is the document that Directive 2009/65 of 13 July 2009 requires from all funds that existed at July 1 2011 or that have been created since that date. It replaces the simplified prospectus and clearly and concisely presents the key information on the fund. It must be given to the investor before any subscription. Its form and contents are dictated by Commission Regulation (EU) No 583/2010 of July 1 2010, published in the Official Journal of the European Union.

Liquidity risk is the decline in price that the Fund/SICAV (open-ended investment company) fund will potentially have to accept when it has to sell assets for which there is insufficient market demand.

A feeder fund invests all of its assets in securities in the master fund. The feeder fund therefore has the same investment approach as the master fund, which invests directly on the markets. The feeder fund’s performances are lower than those of the master fund due to its own management fees. To be qualified as a master fund, the fund must not itself be a feeder fund and must not hold units or shares in a SICAV (open-ended investment company)/feeder fund. The French Monetary and Financial code also adds another condition for a master UCITS fund: it must have at least one feeder fund UCITS among its unit-holders or shareholders.

(Source: articles L214-22 to 214-22-6 for UCITS, articles L214-24-57 to 214-24-61 for AIF of the French Monetary and Financial Code - www.legifrance.gouv.fr)

In a CPPI, monetization risk is indirectly related to capital protection: the portfolio insurance method used to determine the proportion of risky assets in the fund can lead to a money-market or bond type investment approach.

Equity benchmark index consisting of close to 1,500 companies worldwide, with weighting based on market capitalization. The index covers around 85% of the market capitalization in each respective country. It is available at www.mscibarra.com.

Equity benchmark index consisting of around 900 world companies outside Europe, with weighting based on market capitalization. The index covers around 85% of the market capitalization in each respective country. In view of the countries covered by the index, it features all developed markets outside Europe. It is available at www.mscibarra.com.

Multi-management involves selecting the best funds and/or best fund managers to assemble within a same investment vehicle. Multi-management meets traditional investment diversification criteria (asset class, geography, sectors, etc.) by combining two diversified approaches: on the one hand a fund management-based approach by setting up a fund of fund, investing all or most of assets in the best funds, and on the other hand, a fund manager-based strategy, which involves selecting not other funds, but rather fund management professionals who manage all or part of a portfolio in order to build a ‘fund manager of fund manager’ approach.

The overall exposure of a fund includes “physical” positions and “off-balance sheet” positions. Unlike so-called “physical” positions, which are listed in the portfolio’s list of investments from an accounting standpoint, off-balance sheet items consist of positions on financial futures instruments such as derivatives. Examples of derivatives products include futures contracts, swaps, options contracts. Maximum off-balance sheet exposure is outlined in the fund prospectus.

Independent body that assesses and rates the financial situation of various economic players (states, corporates, institutions, etc.) that borrow on the financial markets, and in particular their solvency risk. Each ratings agency has its own rating scale, which influences issuers’ conditions for gaining funding (interest rates). The best known agencies are Standard & Poor’s, Moody’s and Fitch.

The risk and return indicator, which features a scale from 1 to 7 equating to increasing levels of risk and return, enables investors to assess a fund’s performance potential as compared to the risk it carries. The overall methodology for calculating this regulatory indicator is based on the fund’s annualized historical volatility, based on weekly yields over a 5-year period. This indicator is checked regularly and may be subject to change.

Paris share index consisting of 40 stocks on the CAC 40 along with the 80 most liquid stocks on Euronext Paris from among the 200 main French market capitalizations. This index is published by Euronext and is available at www.euronext.com.

Securities are defined by the French Monetary and Financial Code and give identical rights across all categories. The Code defines financial securities as follows: equity securities issued by joint-stock companies, debt securities, with the exception of bills of exchange and interest-bearing notes, units or shares in undertakings for collective investment.

(Source: article L228-1 of the French commercial code article L211-1 of the French Monetary and Financial Code - www.legifrance.gouv.fr)

Certificate evidencing ownership of a fraction of the capital of the company that issued it. Shares can yield dividends and entitle the holder to vote at general meetings. They may be listed on a stock exchange. Also known as a stock or an equity.

Open-ended investment company. A public limited company whose purpose is the management of a portfolio of financial instruments and deposits. SICAV shares may be issued and redeemed by the company at any time at the request of the shareholders at their net asset value plus or minus the fees and commissions, as applicable.

In “socially responsible investment” funds, investment decisions are based on social, ethical and environmental criteria, in addition to traditional financial criteria. These criteria can involve deciding not to invest in certain sectors for example (e.g. arms, betting) or deciding to invest in companies that meet certain standards, particularly in social and environmental terms.
Certain products are subject to very precise regulation such as sustainable development savings accounts and solidarity funds offered as part of employee savings schemes.

The sole purpose of a real-estate investment company (sociétés civiles de placement immobilier, SCPI) is the acquisition and management of real estate for letting. Real-estate investment companies may make public offerings of their units.

To be defined as a solidarity fund, at least 35% of the fund’s assets must consist of securities issued by companies in the social and economy as outlined in article 1 of French law No. 2014-856 of 31 July 2014, and at least five sevenths of these securities must have been issued by solidarity companies with social value as defined by the French labor code.

The difference between the actuarial rate of return on a bond and that on a risk-free loan with the same duration. It shows the risk premium that the issuer must offer the investor to compensate for the risk incurred by investing in the security. The riskier the investment, the higher the risk premium that must be offered.

The top-down approach is a fund management strategy that focuses on the macroeconomic scenario, which is used as a basis to define the overall breakdown of the fund between the various investment possibilities (geographical zones, then sectors), and then select the most attractive companies within each category.

Valuation risk is primarily related to the nature of unlisted securities. This risk is due to the subscription and then subsequent valuation of unlisted securities, in the absence of market and listing references that can clearly regulate them.

Volatility is the extent of fluctuations in the price of a financial asset and is used as a parameter to assess the asset’s risk. When volatility is high, potential gains are usually higher, but the risk of losses is also higher.